Using the Freemium Model

In the freemium business model, users pay nothing to download your app and are offered optional in-app purchases for premium features, additional content, or digital goods. Learn how developers across a range of categories approach using the freemium model in their apps.

Engaging Both Paying and Non-Paying Users

In most cases, providing a great experience to all users regardless of whether they choose to spend is an integral aspect of the freemium model. The path to monetization is through engagement, and when users are given time to enjoy an app, they may be more inclined to invest in paid features.

In the photography app VSCO, “the experience is open to everyone,” says JP Chookaszian, Director of Revenue at VSCO. “We want the creative process to be democratized as much as possible. From their first session with the app, we’re trying to develop trust with users. And we do that by demonstrating value without asking anything from them first. Over time, as they see value in the services and tools that we provide, many are going to want to pay for those more robust features.”

It’s not really a win for VSCO if someone is unhappy with what they’ve purchased,” says Chookaszian. “We want people to be delighted to go spend money on additional features.”

Types of Freemium Apps

Apps with premium upgrades.

Users can purchase non-consumable, advanced features within the app. Non-consumables are purchased once and do not expire, such as additional filters in a photo app.

Apps with subscriptions.

Users can access services, such as cloud storage or periodically updated content like newspapers and magazines. Subscription apps offer auto-renewable in-app purchases, and users are charged on a recurring basis.

Apps with consumable goods.

Users can purchase different types of consumables, such as lives or gems in a game, to further their progress through the app. Consumable in-app purchases are used once, are depleted, and can be purchased again.

From their first session with the app, we’re trying to develop trust with users. And we do that by demonstrating value without asking anything from them first.

JP Chookaszian, Director of Revenue at VSCO.

For Originator Inc., the developer behind the Endless series of children’s apps, the ability for a parent to try before they buy is fundamental to the freemium experience. Says Rex Ishibashi, Chief Executive Officer at Originator, “It can be frustrating if you read reviews that make an app sound wonderful, you make a commitment, you pay, and you discover that the app really doesn’t meet expectations.”

“One of the ways we establish trust is that when you get a trial or some free content, you’re getting the same quality that you would when you pay,” says Joe Ghazal, Chief Technical Officer at Originator. “It’s not like we lead with our best and then when you purchase content you’re getting something that is less interesting or less relevant.”

For SGN, the developer behind games like Juice Jam, Cookie Jam, and Panda Pop, providing great free experiences in its freemium games helps the company attract more users by lowering the barrier to download. “We make social games, and the experience is better when more people are playing,” says Josh Yguado, President and Chief Operating Officer at SGN. “You can do things like share lives, challenge friends to beat your scores, and push each other to become better players, and all of this wouldn’t be possible if we didn’t have a great free experience.”

SGN attracts new users by providing a great free experience and cross-promoting its other games.

Of SGN’s user base, less than half are paying users. Yguado says the company doesn’t want players to feel like they have to pay in order to enjoy the game. For those that do spend, he says, “You want people to feel like they’re really getting something of value, so are they getting something special? Are they getting more content? Are they better able to complete levels that they wouldn’t otherwise? Our goal is to make them comfortable spending in our game and feel like they are getting great value.”

Providing Value for Different Types of Paying Users

Freemium lowers the barrier for users to try an app, and gives them the option to pay if they want to engage more deeply. But segmentation doesn’t stop at non-paying and paying users. Successful freemium apps provide customized experiences based on users’ preferences and the amount they choose to pay.

“Different players are looking for different things in games. Some players are much more competitive, some players are more cooperative, others are more ‘completionists’ and want to solve or collect everything in a game,” says Yguado. “For SGN, we feel like the most successful games provide different paths for each of those types of users, so our games are really as simple or complex as any player desires.”

At VSCO, understanding the user’s journey helps the company customize the experience.“What I needed in my first session is very different than what I need today,” says Chookaszian of his own experience using the app. “When we think about the customer journey, we think about the important milestones along the way and how they fit within the app from a product standpoint. Then we think about what a user needs at each point along the way, and how and when to shepherd them to those things.”

At Originator, segmentation extends beyond users of an individual app to include the preferences and budgets of different user groups. For educators or institutions that may not be able to use apps with in-app purchase, Originator offers fully paid school editions of its Endless apps alongside the freemium versions. The company has also introduced a freemium subscription app called the Endless Learning Academy, which brings together all of the Endless apps and hours of new lessons to which users can subscribe on a monthly or yearly basis.

The most successful games provide different paths for each of those types of users, so our games are really as simple or complex as any player desires.

Josh Yguado, President and COO at SGN.
Originator provides various purchase options for different types of users, including fully paid versions, freemium apps with premium upgrades, and a freemium subscription service.

“We started out with Endless Reader, a freemium app, but we got a lot of feedback from users, whether it was through schools though the Apple Volume Purchase Plan or parents who don’t like in-app-purchases, saying 'You know I’d really like to buy it upfront,'” say Ghazal. “And so we released the school edition of Endless Reader.”

Preparing for the Long Term

Successful freemium apps offer continuously evolving content or services to provide value to users and to encourage engagement and monetization. Engaged users sometimes move quickly through content, and planning and resources are required to keep the pipeline full.

“There’s no shortcut to quality, and for SGN the basis of everything is creating a game with powerful characters, great story, great art, a flawless technical experience that they can access on any of their devices,” says Yguado. “If you don’t get the basics down, users are going to churn out very quickly. And if you don’t have a team prepared to generate a steady stream of quality content, it’s going to become static very quickly.”

Says Matt Casertano, former Senior Vice President of Game Operations at SGN, “We were quick to realize how insatiable core players are, and how much they really want content, so we made a substantial investment in game design in order to satisfy that need for content. We have a very strong, dedicated group of players at the end of content who are waiting for their next challenge, and they know they are going to get their next set of levels every week.”

Originator, a five-person operation, kept pace with the demand for content for its freemium apps as its animation pipeline grew more robust. The Endless Reader app, which launched with 26 words, now has 341 words and covers all of the sight words that educators cite as being important for young readers to learn. “The growth of content in our apps originally was a result of need, really,” says Ishibashi. “We started off slowly and ramped up as we’ve grown as a company and as each of the apps has proven themselves.”

If you don’t have a team prepared to generate a steady stream of quality content, it’s going to become static very quickly.

Josh Yguado, President and COO at SGN

Optimizing with Analytics

Successful freemium apps have analytics built into the experience so that developers can understand user preferences and continually improve the apps.

“At SGN we really value scale, and in order to achieve scale, you need to have the best user experience possible. We look at data as a tool that we can use to better improve that experience,” says Casertano. “What that means is taking a look at some very high-level KPIs, like retention, which is how many users are coming back to the app on a day-to-day basis. We don’t just look at short-term retention, we look at very, very long-term retention, because our goal is to create experiences that people play for years."

“Drilling down from retention, it’s really important to look at funnels — so how many players are moving from step to step — and an easy way to do that is to look at it in a linear game, through how many users are progressing from level to level. What this does is allows you to establish relationships between monetization and drop off. And that’s an area where you need to be really delicate and really expert in your tuning, because you want to create an experience that is challenging — because people find challenges fun — but you don’t want to create an experience that is too challenging — because people then get overwhelmed and frustrated by it. So the numbers allow us to do this on a continual basis and improve every day.”

At Originator, Ghazal looks at data to understand what users find most compelling. “We rely on analytics pretty heavily to learn, not just from a monetization perspective, but also where are they spending time in the app, what are the parts of the app that seem more interesting than others,” he says. “We’re already seeing surprises in the new Endless Learning Academy, where people are spending more time in a certain part of the app where we didn’t expect them to. And we’re not 100% sure why yet. Some of that is going to go into follow-up sessions with some of our users to try to understand what works and what doesn’t. But there are just as many surprises as there are things that we see that we expected to see.”

At VSCO, Chookaszian finds that pairing quantitative data with qualitative feedback helps to form a more meaningful picture of user preferences. “If you take a narrow view on quantitative analysis you can really miss the forest through the trees. So we can form a hypothesis from the data but then it’s really important to go out and validate that with the community.”

We rely on analytics pretty heavily to learn, not just from a monetization perspective, but also where are users spending time in the app, what are the parts of the app that seem more interesting than others.

Joe Ghazal, CTO at Originator

If you take a narrow view on quantitative analysis you can really miss the forest through the trees. So we can form a hypothesis from the data but then it’s really important to go out and validate that with the community.

JP Chookaszian, Director of Revenue at VSCO.

Reaching Users with Marketing

To maximize their reach with their target audience, many successful freemium developers run extensive user acquisition marketing campaigns. While users may be more likely to download an app with no price barrier, marketing can help a freemium app reach large groups of users who will most enjoy it.

SGN’s main sources of new users are organic referrals — users who come across a game via their friends or other trusted sources — and cross promotion. “We made a strategic decision to create a family of games that cross-promote well, and we’re at a significant advantage to have many games that if you like one game you may like others,” says Yguado. “And so user acquisition, company branding, and social evangelism all become easier when you have a family of games that support each other.”

The company is also at a scale where investing in paid user acquisition makes sense for its games. “We try to raise awareness in spaces where our app is contextually relevant,” Casertano says of SGN’s social media ads, TV spots, and subway posters. “We want to be in a lot of places where people are looking for a new experience.”

For Originator, the cost of investing in paid user acquisition activities is weighed against the potential return on investment. Says Ishibashi, “We’ve evaluated paid user acquisition marketing since our inception. Frankly, we’ve never been able to make economic sense out of it. It really wasn’t until the subscription-based service where we finally developed a model where paid user acquisition marketing does make sense. Given that with five people we don’t have a big marketing team, we plan on learning more about what users are doing in the subscription-based app, and do some other optimizations before we really start to market the product to users.”

Getting the community to do the marketing for you is the most compelling form of marketing that you can have, and it’s the most honoring to you as a brand that someone is actually willing to associate with you.

JP Chookaszian, Director of Revenue at VSCO
In-App Purchase Promo Codes
Give press and influencers early access to your app’s in-app purchases with promo codes from iTunes Connect. You can give away up to 100 promo codes for each in-app purchase item, up to a maximum of 1,000 codes per app. Learn more.

VSCO’s marketing approach is to understand where users in its target audience spend time interacting around the topics of photography. “Because photography is so easily sharable, it’s all over social media, which is why it’s such a compelling medium,” say Chookaszian. “From the very beginning, we were thinking, how do we optimize the experience for our creatives to be able to share content on our platform and out to other platforms as well?”

"The most compelling form of marketing you can have is when your community actually does it for you," says Chookaszian. "Each VSCO hashtag that someone posts is incredibly valuable to us. It's an honor when someone is willing to identify with your brand publicly. And that's something we really try to stay close to.”

Featured Developers

Originator Inc.

San Francisco, California

Apps Mentioned: Endless Reader, Endless Numbers, Endless Alphabet, Endless Learning Academy

Category: Kids

Platforms: iOS, tvOS

View on the App Store

VSCO

Oakland, California

Apps Mentioned: VSCO

Category: Photo & Video

Platforms: iOS, watchOS

View on the App Store

SGN

Los Angeles, California

Apps Mentioned: Cookie Jam, Panda Pop, Juice Jam

Category: Games

Platforms: iOS

View on the App Store